The Biggest Bear On Wall Street

Rather than a contrarian-only affair, the coming economic crisis is a concept embraced by the masses. Reuters, hardly a conspiratorial media source, articulated the broadly bearish sentiment with their bluntly stated headline, "Wall Street braces for grim 3d quarter earnings season." While this could be an example of investment analysts hedging their posteriors, should the markets collapse, fewer people could use the excuse of ignorance. While a bit off from the "fair and balanced" perspective supposedly espoused by Fox News, the business media has admittedly come a far way from its virtually exclusive singularity.

To be fair, who could deny this current season of pessimism? Industry stalwarts, such as Hewlett-Packard, Qualcomm, and most recently Caterpillar have announced massive layoffs -- labor cuts that not only strike against the nominal opportunities available but more importantly, the qualitative core. The losses would not simply be made up by a resurgence of Wal-mart jobs.

It's no wonder then that the mainstream is finally acknowledging the underlying economic problems in greater volume. The Reuters article goes on to state that "Analysts have been cutting projections for the third quarter, which ends on Wednesday, and beyond. If the declining projections are realized, already costly stocks could become pricier and equity investors could become even more skittish."

Of course, the usual suspects are taking center stage -- the U.S. dollar, commodities (ie. oil), high-volume stocks, and news-breaking companies like Caterpillar. However, the biggest bear on Wall Street could very well be the major credit card companies, with the management style of one being particularly telling.

The four major credit cards -- Visa, Mastercard, Discover, and American Express -- are ranked in that order in terms of nominal consumer transactions. The rankings are not surprising. From the get-go, Visa and Mastercard are known as the "people's credit card," while American Express has largely catered to a more affluent clientele.

But contrary to the supposed recovery in the domestic economy, the share price of credit card companies have not inspired much confidence. Since late July of this year, Visa stock is down 7% and is struggling to maintain momentum, similar to the fate of the broad indices. Mastercard shares have also traded in lockstep with Visa.

The black sheep among credit cards, however, is American Express. Their valuation has been decidedly negative, losing about 20% since June of last year. Worse, their market share penetration has been considerably stunted with the loss of exclusivity with Costco, the second biggest retail chain in the U.S. As a result of the bearish environment, American Express has focused on profitability, not growth. Their investment expenditures have declined, as evidenced by the stability of their on-hand cash, which runs counter to the spending spree conducted by rival Visa.

What's the lesson here? The rich are not investing but are staying in cash. Consequently, cash is king, providing returns that are superior to that of stocks and bonds, something that hasn't been seen for decades. It begs the question that if those with access to the best information are selling, why should you do the buying?